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Earnings Increase at Bayer in 2Q

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Bayer’s (BAYRY - Free Report) earnings during the second quarter of 2013 came in at €1.54 per share (approx. $2.01) compared with €1.45 per share (approx. $1.86) in the year-ago period. Earnings benefited from higher revenues.

Bayer recorded 1.9% (4.6% on an adjusted basis) growth in revenues to reach €10.4 billion. The increase was primarily driven by the HealthCare and the Crop Science segments of the company.

Segmental Performance During the Quarter

The three major segments – HealthCare, Crop Science and Material Science – accounted for approximately 46.3%, 23.1% and 27.8%, respectively, of total revenues during the second quarter of 2013. Revenues from the Crop Science and HealthCare segments improved by 5.1% and 3.8% respectively, whereas revenues from the Material Science segment declined 2.7% year over year.

The HealthCare segment recorded revenues of €4.8 billion in the reported quarter. Both sub-segments, Consumer Health (adjusted growth of 4.2%) and Pharmaceuticals (adjusted growth of 10%) performed well in the quarter.

Sales of new products like Xarelto (anticoagulant), Eylea (eye medicine) and Stivarga (oncology) boosted the Pharmaceuticals segment. Growth in the Consumer Health subgroup, comprising Bayer’s over-the-counter drug business for human beings and animals, was primarily driven by the impressive performance of the Consumer Care division in the emerging markets.

The Crop Science division, which is engaged in developing and marketing chemical crop protection products (insecticides, herbicides, and fungicides), seeds and integrated plant biotechnology solutions for agricultural and non-agricultural uses, recorded sales of €2.4 billion in the second quarter of 2013. The Crop Science segment exhibited solid growth particularly in Latin America, Africa and the Middle East, along with Asia/Pacific and Europe.

The Material Science segment, one of the world’s largest polymer manufacturers, posted sales of €2.9 billion in the reported quarter. The segment suffered during the quarter, primarily due to a challenging market condition. However, the segment’s second quarter sales levels were up on a sequential basis as the company expected last quarter.

2013 Outlook

Apart from releasing its financial results, Bayer made some adjustments to its guidance for 2013. Bayer expects 2013 sales to be within €40 billion and €41 billion (previously: around €41), an increase of 4−5% from the 2012 figure.

Revenues from the HealthCare segment are still expected to come around €19 billion (mid-single-digit percentage growth). However, Bayer now expects the Pharmaceuticals segment to exhibit high-single-digit sales growth (previously: mid-single-digit sales growth) in 2013, primarily due to the segment’s recent encouraging performance.

Sales in the segment are now expected to exceed the previous guidance of €11 billion. Bayer also expects its new products to contribute €1.4 billion (up 40% from the previous view of €1.0 billion) to the segmental sales in 2013.

Meanwhile, the company still expects its Consumer Health sales to exhibit mid-single-digit sales growth to around €8 billion in 2013.

Bayer also maintained its 2013 guidance for the Crop Science segment. Bayer expects the Crop Science segment to grow in the high-single-digit percentage range to around €9 billion in 2013. Meanwhile, based on the recent disappointing results, the company now believes that Material Science segment revenues may not reach the previous year sales figure of €11.5 billion. Previously the company expected 2013 sales to surpass the previous year figure and reach approximately €12 billion.

Earnings are however still expected to increase in the high single-digit percentage year over year.

Bayer, a large cap pharma stock, presently carries a Zacks Rank #3 (Hold). However, another large cap pharma stock, Johnson & Johnson (JNJ - Free Report) , currently looks better positioned with a Zacks Rank #2 (Buy).

Other companies in the pharma space that are worth considering include Biogen Idec Inc. (BIIB - Free Report) and Gilead Sciences Inc. (GILD - Free Report) . Both carry a Zacks Rank #1 (Strong Buy).

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